'Critical surgery' for Bahamian economy

The Bahamas "must perform critical surgery on our economy" to return to the 3 percent-plus average GDP growth enjoyed pre-recession, the Chamber of Commerce's chief executive said yesterday.

Jeffrey Beckles told Tribune Business that 2018's 1.6 percent real GDP expansion, unveiled by the Department of Statistics on Monday, was "not sustainable" and inadequate to solve The Bahamas' pressing economic and social needs.

He added that the fact it had taken six years to return to 2012's economic output levels "spoke for itself" in terms of highlighting The Bahamas' economic "struggle" over the past decade since the 2008-2009 recession.

Arguing that three consecutive years of 1.6 percent GDP growth "won't do much for us", Mr Beckles said The Bahamas was well "past the time for talking" when it came to implementing real structural reform that removed obstacles to improving the cost and ease of doing business in this nation.

He called for the private sector to lead the charge for higher GDP growth, and warned that "market forces need to be in play" if The Bahamas is to achieve the faster expansion necessary to make a serious dent in the stubborn double-digit unemployment rate.

"The short answer is: 'No'," Mr Beckles replied, when asked if 1.6 percent GDP growth was sufficient to meet The Bahamas' needs. "Anything less than pre-recession growth rates will be a struggle for The Bahamas, and what happened in the last 10 years is trending in the wrong direction.

"The more we struggle to get back to pre-recession, the longer the road is going to be for us. It means that the recovery has been far longer than most of us anticipated. While we're not the only ones recovering, to be in this position where we're still struggling to get 2 percent average growth speaks to the fact we have more to do."

The Department of Statistics data, which took 2012 as its baseline, revealed that it took six years for the Bahamian economy's real GDP output to move beyond the level recorded for that year.

GDP, which measures the total value of goods and services that an economy produced, stood at $10.721bn for 2012. However, this output slumped by more than $300m the following year to $10.404bn as a result of a 3 percent contraction.

The Bahamas spent the next five years regaining this lost output, with real GDP growth rates ranging from a high of 0.7 percent in 2014 to a low of 0.1 percent in 2017. The “major” growth surge came in 2018 as a result of the 1.6 percent expansion, which finally moved real GDP above 2012 levels to $10.763bn.

Last year's improvement was likely driven by Baha Mar's full opening and improved tourism numbers spurred by a rising US economy and consumer/traveller confidence, but Mr Beckles told Tribune Business that The Bahamas could take little comfort from the economy's performance over that period.

"Over that span we can't see that as an improvement," he argued. "Some may see it differently, but if you're comparing 2018 to 2012 levels that makes the point itself. Even if we were to repeat 1.6 percent for the next three years that's not going to do much for us.

"I think it's obvious that we cannot continue to the same things we have been doing. We talk about the need to diversify, make structural changes and reforms. I think we're past the time of talking about these things. We literally have to do critical surgery on our economy, look at what's working and what's not working, and stop doing those things.

"If we're serious about it we have to perform surgery on our economy and cut out those things not helping it, and look at ways to diversify so there can be more activity. Our standpoint is: We've been talking about this for a long time, and have fantastic minds in the country. Let's get them around the table and figure out what it takes to get this economy to move."

The 1.6 percent GDP growth rate unveiled by the Department of Statistics meant The Bahamas missed the 2.3 percent expansion projected by the International Monetary Fund (IMF), together with the Government's own estimates which were in line with that.

The 0.7 percentage point difference is roughly equivalent to a $70m undershoot on the GDP/economic output forecast, and has been seized upon by the Government's political opponents to slam its economic policies and management.

The Government, though, can hit back by arguing that the data shows the economy actually contracted in real terms during the 2012-2017 Christie administration's term in office, with growth never exceeding 0.7 percent.

Mr Beckles said the IMF's growth target was "reasonable", and added: "The truth is we've gone back to the average we had in previous years. If you look at everything, the needle hasn't moved a lot.

"Realistically, I don't think we were in a position to grow much more in 2018. I don't see anything that would have impacted us to move close to 2 percent. That being said, there's a lot to be done to effect that and how we foster more activity on the domestic side.

"We need to let the private sector lead the business sector; policymakers play their role, although we have to be careful to balance the two, and market forces need to be in play in The Bahamas to see the kind of activity we want."

The Oxford Economics report on full World Trade Organisation (WTO) membership's likely impact on The Bahamas, which was commissioned by the Chamber of Commerce, made a similar call for broad-based structural reforms that improved governance and transparency, eliminated bureaucracy and red tape, and boosted the ease - and lowered the cost - of doing business.

It said low growth rates have become the ‘new norm’ for the Bahamian economy, pointing out that average annual GDP expansion between 2011-2017 averaged a mere 0.6 percent. This represented a "marked slowdown" from the 3.1 percent growth rates achieved prior to the 2008-2009 financial crisis.

"Traditional growth engines of tourism and financial services have been struggling and unemployment remains stubbornly high," the report added, despite the double-digit growth in both stopover and total visitor arrivals to The Bahamas during 2018 and 2019 to-date.